Consumer prices for urban shoppers, an inflation benchmark that covers nearly 90% of the U.S. population, climbed more rapidly last month, a shift that may ease Federal Reserve concerns about a slowing economy.
The widely followed index for all goods climbed 1.8% in the 12 months through July, up 20 basis points from June, according to a report Tuesday from the U.S. Labor Department. Core inflation, which excludes food and energy bills, gained 2.2%, compared with 2.1% the month before.
The latest data from the Consumer Price Index “should provide some comfort” to the Federal Reserve’s monetary policy committee, which recently lowered short-term interest rates by 25 basis points to insulate the economy from the Trump administration’s trade war with China, said Blerina Uruçi, an economist with British lender Barclays Plc.
Still, the outlook is clouded by softness in manufacturing as well as 10% tariffs that the U.S. plans to impose Sept. 1 on Chinese imports unaffected by earlier 25% duties, she said.
As the U.S. central bank monitors inflation for the remainder of the year, “it will require a broad-based and sustained improvement in momentum across categories before being confident that the recent weakness in inflation has been overcome,” Uruçi said.
Inflation that slowed from the start of 2019 and was lagging the Fed’s goal of 2%, the level it believes will support stable economic growth, was among the reasons Chairman Jerome Powell offered when the central bank lowered interest rates in late July to a range of 2% to 2.25%.
“We continue to expect that inflation will return over time to 2%, but domestic inflation pressures remain muted, and global disinflationary pressures persist,” he told reporters afterward. “Wages are rising, but not at a pace that would put much upward pressure on inflation. We are mindful that inflation’s return to 2% may be further delayed, and that continued below-target inflation could lead to a worrisome and difficult-to-reverse downward slide.”
Economists at Charlotte, North Carolina-based Bank of America now see a 1-in-3 chance of a recession before next year’s presidential election, fueled in part by U.S. trade conflicts that have focused on China but also encompass tariffs on steel, aluminum, washing machines, and solar panels, and threatened duties on goods from cars to automobile parts and French wines.
President Trump has maintained that the strategy will ultimately yield favorable trade deals for the United States, particularly with China, the world’s second-largest economy. Businesses have long criticized the nation for forcing them to share intellectual property as a condition of doing business in the country.
“We’ve been hurt by China for 25, 30 years,” Trump told reporters last week. “Nobody has done anything about it. And we have no choice but to do what we’re doing.”
Amid pushback from businesses, however, the administration agreed Tuesday to delay tariffs planned for Sept. 1 on some goods — including video game consoles, cellphones, and certain toys — until Dec. 15.
